Risk Factors

All business operations and all ownership of shares are associated with risks. Risks that are managed well can lead to opportunities and add value, while risks that are not managed well can result in damage and losses.

In this section a number of risk factors that may affect the Company’s future development will be outlined. These are not ranked in any way nor does the Company make any claims that this listing of risks is comprehensive. Risk factors that have not yet been identified or that have not been considered relevant or significant may still affect the Company’s future development.

RISKS RELATED TO THE BUSINESS AND THE INDUSTRY

MARKET TRENDS

Nicoccino Holding manufactures and sells nicotine products for the consumer market and aims to target the market of non-prescription medicinal products. The assessment of the Company is that its nicotine products can be sold on the consumer market and/or the medicinal non-prescription market depending on each market’s regulations. The industry is currently made up by several solid tobacco and pharmaceutical companies as well as companies and interest groups that may affect how nicotine products may be marketed and sold on different markets through lobbying. The possibility of this affecting the Company in a negative way cannot be excluded.

REGULATORY RISKS

In order to be able to sell nicotine products on the consumer market, certain rules and regulations must be followed in every country. These rules and regulations may be changed in a way that affects how the Company’s products may be represented with a view to strength and packaging. Rules and regulations determining how the products may be marketed and sold may also change. The Company cannot predict if, where, when and how these rules and regulations may change, nor if any such changes may affect the Company negatively.

In order for the Company to be able to sell its nicotine product as a medicinal non-prescription product in the long-term, market approvals must be obtained for each geographical market. The Company cannot predict with certainty which additional clinical studies that will need to be carried out for every market. Similarly, the Company cannot predict with certainty if the manufacturing process will get approval, how long it will take to get a market approval or if market approvals will be obtained on the markets where the Company wishes to sell its products. In this aspect, Nicoccino Holding, just like any other company in the pharmaceutical industry, will depend on assessments and decisions from the relevant authorities, such as the Medical Products Agency (Läke­medels­verket) in Sweden, the Food and Drug Administration (FDA) in the US or the European Medicines Agency (EMA) in the EU. These assessments relate to, for instance, the authorization to carry out clinical tests or to market and sell medicinal products.

An application to obtain market approval for the Company’s products as medicinal products will require extensive documentation involving, for example, results of clinical studies, quality assurances and manufacturing processes that comply with any applicable national and international requirements. Even if the Company manages to compile large parts of the required documentation, whilst carrying out clinical studies, unforeseen circumstances may still cause delays which may lead to submitting applications for market approval later than expected. The authorities may ask for additional documentation or question certain aspects of the Company’s applications, meaning that the timeline for market approvals is uncertain. It cannot be excluded that the Company may have to submit additional documentation during the application process, which may be time consuming and lead to unforeseen costs.

SIDE EFFECTS

The Company’s main line of business is to develop and sell nicotine products, with the risk of people who consume or participate in clinical studies with the Company’s products, or that are in in any way exposed to the Company’s products, may experience side effects. The consequences of any potential side effects may delay or stop the process to obtain the market approval, lead to a stop in sales and thereby affect the Company’s turnover, results and financial position. Furthermore, it cannot be excluded that the Company may be sued by people who experience side effects, which in turn may lead to the Company being liable to pay damages.

COMPETITION

The Company is part of an industry that is characterised by severe competition and there are no guarantees that the Company’s products will be preferred to competing companies’ existing or forthcoming products on the market. Furthermore, it cannot be excluded that competitors may develop products that hold the same or even a higher standard than Nicoccino Holding’s products. Future products that are being developed by other companies may result in stiffer competition and reduced opportunities for the Company’s products with regard to market share and price. The uncertainties represent risks that may have a negative effect on the company’s expected turnover, results and financial position.

PRODUCTION, AFFILIATES AND DISTRIBUTION CHANNELS

Nicoccino Holding’s products are manufactured in external production facilities with substances provided by the Company’s suppliers. There are no guarantees that delays will not occur or that these third parties may not fulfil their commitments as per the established agreements, or that any new agreements may be reached with favourable conditions. Nicoccino Holding maintains that its potential growth in large part depends on its partnerships with distributors, retailers and other distribution channels. The Company cannot guarantee that any agreements will be reached with favourable conditions or that already established agreements will be upheld by its counterparts. If the Company cannot enter important agreements, or if any of the agreements are relinquished or are not met by its counter parts, it may affect the Company’s development, growth and financial position in a negative way. The Company may also be affected negatively if any vital business systems crash or break down.

PRODUCT LIABILITY AND INSURANCE

Nicoccino’s business undertakings do entail certain risks in terms of product liability. The Company will maintain any product liability insurances that are considered necessary. However, certain financial claims aimed at the Company due to damages caused by the Company’s products or prototypes may exceed the amounts covered by the Company’s insurances. Furthermore, it cannot be excluded that the Company’s product liability insurance may not cover a potential claim for damages. If the Company is found to be liable to damages in excess of the financial coverage of the Company’s insurances then this may also affect the Company’s results and financial position in a negative way.

PATENTS, TRADEMARKS AND KNOW-HOW

The Company forms part of an industry where the risks that the patent, the licensed patent rights or other intellectual property rights do not provide sufficient protection for the Company or that the Company’s rights cannot be sustained. Furthermore, breaches of patents may occur, which may in turn lead to costly disputes. The outcome of any such disputes cannot be guaranteed. A negative sentence in legal disputes regarding intellectual property may lead to a loss in protection, a ban on using the relevant right or liability to pay damages.

Nicoccino Holding has licensed a patent for the use of the substance nicotine by FFT Medical AB. This patent has still not been approved in all the countries where the applications have been submitted, and there are no guarantees that these will be approved. The Company has also submitted an application of its own for an additional patent. There are no guarantees that this application will be approved and lead to an awarded patent.

Nicoccino Holding has an approved trademark in all EU member states as well in the United States, China, Switzerland, Norway, Kazakhstan, Monaco, Russia, South Korea and Turkey. Applications for Canada and Israel are pending.

Even if the Company has non-disclosure agreements in place and endeavours to restrict any leaks if know-how and information regarding the most sensitive components in the manufacturing of the Company’s products, there are no guarantees that an uncontained diffusion and copying of the Company’s manufacturing methods will not occur. An uncontained diffusion and copying of such information may damage the Company if the information were to be used to manufacture competing products or if it is used in any other way for commercial purposes without Nicoccino Holding receiving financial compensation for it.

KEY PERSONNEL

Nicoccino Holding is highly dependent on the Company’s top management and other key personnel. If the Company were to lose any of its key personnel it may have a negative impact on the Company’s opportunities to expand and grow.

GROWTH AND RECRUITMENT

Nicoccino Holding aims to expand its business in the coming years and there will be a need to recruit for all new roles within the Company. With said expansion, new demands will also arise on the Company’s current control, accounting and information systems. If the Company cannot control or supply for its growth efficiently, this may also have a negative effect on the Company’s results and financial position.

LEGAL RISKS

In the long term, Nicoccino Holding will be present in several countries and will thereby be affected by the legislation in each and every country. It cannot be excluded that these legislations in terms of taxing, customs tariffs and approvals may change, possibly even with a retroactive effect, in a way that may have a negative impact on the Company’s results and financial position.

FINANCIAL RISKS

FLOATING CAPITAL

It is Nicoccino Holding’s assessment that the Company has enough capital to achieve a positive cash flow. However, this cannot be guaranteed. It cannot be excluded that the Company may need to seek financing, including loans or using its own capital, to cover any unforeseen funding needs. There are similarly no guarantees that any such financing may be obtained at any given time or that that the conditions for any such financing are acceptable for the Company and its shareholders. For example, a new issue of shares in the Company may lead to a dilution for existing shareholders.

CURRENCY

There are risks related to currency exchange rates that may have a negative impact on Nicoccino Holding’s results, financial position and/or cash flow. Risks linked to fluctuations in currency exchange rates mainly relate to financial trans­actions and currency conversions. The Company currently has a relatively limited currency exposure as the manufacturing is still in a ramp up stage, sales have not yet started and the main operational activities are occurring in Sweden. Since both manufacturing and future sales mainly will be linked to foreign currencies the currency exposure of the Company will increase gradually.

RISKS RELATED TO THE COMPANY'S SHARES

THE STOCK EXCHANGE

Any potential investors should be aware that an investment in the Company’s shares will be associated with a high level of risk. The Company’s results are only one aspect of the risk; the share price depends on several factors that are out of the Company’s control. Such factors include, for example, the economic climate, market interests, capital flows, political instability, and market and behavioural psychology. Even if the Company’s activities have a positive development it cannot be excluded that an investor may make a loss when selling the Company’s shares.